Wesco Insurance Company v. Sentry Insurance Company

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United States District Court
Northern District of California
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
WESCO INSURANCE COMPANY,
Plaintiff,
v.
SENTRY INSURANCE COMPANY,
Defendant.
Case No. 25-cv-07584-TSH
ORDER DENYING DEFENDANT’S
MOTION TO DISMISS PURSUANT TO
RULE 12(b)(6)
Re: Dkt. No. 12
I. INTRODUCTION
Plaintiff Wesco Insurance Company (“Wesco”) brings this action in subrogation against
Defendant Sentry Insurance Company (“Sentry”), alleging that Sentry failed to perform its
obligations under an insurance contract by refusing to settle a case brought against Sentry’s
insured. ECF No. 1. Pending before the Court is Sentry’s Motion to Dismiss pursuant to Rule
12(b)(6). ECF No. 12 (“Mot.”). The Court finds this matter suitable for disposition without oral
argument pursuant to Civil Local Rule 7-1(b) and VACATES the December 4, 2025, hearing.
For the reasons stated below, the Court DENIES the motion.1
II. BACKGROUND
A. Factual Background
Wesco, a Delaware corporation with its principal place of business in New York, issued a
commercial insurance policy naming Taylor Houseman, Inc. (“Taylor”) as an insured. Compl. ¶¶
1, 6 (ECF No. 1). Sentry, a Wisconsin corporation with its principal place of business in
1 The parties consent to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c). ECF Nos.
13, 16.
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Wisconsin, issued a commercial insurance policy covering Taylor as an additional insured party.2
Id. ¶¶ 2, 7–8. This matter arises out of an underlying state court action that names Taylor as a
defendant. Id. ¶ 5; see Jaurice Hutson v. Taylor Houseman, Inc., et al., Contra Costa Superior
Court No. CIV MSC21-01940 (the “Hutson Action”).
Overall, Wesco alleges that it suffered harm when Sentry refused to accept the statutory
offer for Taylor in the Hutson Action and Wesco was forced to pay its excess limits toward
satisfying the judgment against Taylor. Compl. ¶¶ 22–26. According to Wesco, as Taylor’s
primary insurer, Sentry was obligated to accept the statutory offer for Taylor, and Wesco is now
subrogated to the rights of Taylor as against Sentry. Id. ¶¶ 28–30.
1. The Underlying Action And Insurance Policies
Jaurice Hutson initiated the Hutson Action, alleging that on “November 8, 2019, he
suffered serious injuries caused by a defective commercial washing machine made and distributed
by” Alliance Laundry Holdings, LLC (“Alliance”) and sold by Taylor. Id. ¶ 5; see Sentry’s
Request for Judicial Notice, Ex. C (the “Hutson Complaint”) (ECF No. 12-1 at 334). Mr. Hutson
alleged four causes of action against Taylor and Alliance: (1) strict products liability for
manufacturing defect, design defect, and failure to warn; (2) negligence in, inter alia, design and
maintenance; (3) breach of implied warranty; and (4) breach of express warranty. Hutson
Complaint at 16–21. Mr. Hutson alleged that Taylor poorly maintained the subject washing
machine for twenty years and that Taylor was negligent in “maintaining, and/or servicing of the
subject washing machine.” Id. at 16, 18–20.
The Hutson Action implicates three insurance policies. Wesco issued a commercial
insurance policy naming Taylor as an insured—the policy has a one-million-dollar limit. Compl.
¶ 6. Sentry issued a commercial insurance policy naming Alliance as an insured that qualified
Taylor as an additional insured party under the policy’s Vendor Endorsement—the policy has a
two-million-dollar limit. Id. ¶¶ 7–8. Alliance also had excess liability insurance through Federal
Insurance Company—the policy has a twenty-five-million-dollar limit. Id. ¶ 11.
2 “[B]efore 2021, Sentry Insurance Company was known as Sentry Insurance a Mutual Company.”
Compl. ¶ 2.
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a. The Wesco Policy
Wesco issued to Taylor,
as named insured, a policy of commercial general liability insurance,
no. WPP1827846 00, for the policy year August 25, 2019-2020, with
per-occurrence limits of insurance of $1 million. The basic insuring
provisions of the Wesco policy were set out in Insurance Services
Office form CG 00 01 04 13. The Wesco policy was in effect on the
date of Mr. Hutson’s alleged injury.
Compl. ¶ 6; see Sentry’s Request for Judicial Notice, Ex. B (the “Wesco Policy”) (ECF No. 12-1
at 81).
The Wesco Policy contains an “Other Insurance” provision that states:
If other valid and collectible insurance is available to the insured for
a loss we cover under Coverages A or B of this Coverage Part, our
obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when Paragraph b. below applies. If
this insurance is primary, our obligations are not affected unless any
of the other insurance is also primary. Then, we will share with all
that other insurance by the method described in Paragraph c. below.
b. Excess Insurance
(1) This insurance is excess over:
(a) Any of the other insurance, whether primary,
excess, contingent or on any other basis:
(i) That is Fire, Extended Coverage, Builder’s
Risk, Installation Risk or similar coverage for
‘your work’;
(ii) That is Fire insurance for premises rented
to you or temporarily occupied by you with
permission of the owner;
(iii) That is insurance purchased by you to
cover your liability as a tenant for ‘property
damage’ to premises rented to you or
temporarily occupied by you with permission
of the owner; or
(iv) If the loss arises out of the maintenance or
use of aircraft, ‘autos’ or watercraft to the
extent not subject to Exclusion g. of Section I
- Coverage A - Bodily Injury And Property
Damage Liability.
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(b) Any other primary insurance available to you
covering liability for damages arising out of the
premises or operations, or the products and completed
operations, for which you have been added as an
additional insured.
(2) When this insurance is excess, we will have no duty under
Coverages A or B to defend the insured against any ‘suit’ if
any other insurer has a duty to defend that insured against the
‘suit.’ If no other insurer defends, we will undertake to do so,
but we will be entitled to the insured’s rights against all those
other insurers.
(3) When this insurance is excess over other insurance, we
will pay only our share of the amount of the loss, if any, that
exceeds the sum of:
(a) The total amount that all such other insurance
would pay for the loss in the absence of this insurance;
and
(b) The total of all deductible and self-insured amounts
under all that other insurance.
(4) We will share the remaining loss, if any, with any other
insurance that is not described in this Excess Insurance
provision and was not bought specifically to apply in excess
of the Limits of Insurance shown in the Declarations of this
Coverage Part.
Compl. ¶ 9; see Wesco Policy at Section IV.4.
b. The Sentry Policy
Sentry issued to Alliance,
as named insured, a policy of commercial general liability insurance,
no. 90-05297-03, effective for the policy year May 5, 2019- 2020,
with per-occurrence limits of insurance of $2 million. The basic
insuring provisions of the Sentry policy were set out in Insurance
Services Office form CG 00 01 04 13. Sentry’s named insured
[Alliance] was named as a defendant in the underlying Hutson action.
The Sentry policy was in effect on the date of Mr. Hutson’s alleged
injury.
Compl. ¶ 7; see Sentry’s Request for Judicial Notice, Ex. A (the “Sentry Policy”) (ECF No. 12-1
at 7). Taylor qualified as an additional insured under the Sentry Policy with respect to the Hutson
Action. Compl. ¶ 8.
The Sentry Policy contains a Vendor Endorsement provision that covers as additional
insureds “All Vendors Of Your Products Domiciled In The United States Of America Or Canada”
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for “All Products.” Compl. ¶ 8; see Sentry Policy at 28 (emphasis omitted). This provision states,
in pertinent part:
WHO IS AN INSURED (Section II) is amended to include as an
insured any person or organization (referred to below as ‘vendor’)
shown in the Schedule, but only with respect to ‘bodily injury’ or
‘property damage’ arising out of ‘your products’ shown in the
Schedule which are distributed or sold in the regular course of the
vendor's business, subject to the following additional provisions:
1. The insurance afforded the vendor does not apply to:
a. ‘Bodily injury’ or ‘property damage’ for which the vendor
is obligated to pay damages by reason of the assumption of
liability in a contract or agreement. This exclusion does not
apply to liability for damages that the vendor would have in
the absence of the contract or agreement;
b. Any express warranty unauthorized by you;
c. Any physical or chemical change in the product made
intentionally by the vendor;
d. Repackaging, unless unpacked solely for the purpose of
inspection, demonstration, testing, or the substitution of parts
under instructions from the manufacturer, and then
repackaged in the original container;
e. Any failure to make such inspections, adjustments, tests or
servicing as the vendor has agreed to make or normally
undertakes to make in the usual course of business, in
connection with the distribution or sale of the products;
f. Demonstration, installation, servicing or repair operations,
except such operations performed at the vendor’s premises in
connection with the sale of the product;
g. Products which, after distribution or sale by you, have been
labeled or relabeled or used as a container, part or ingredient
of any other thing or substance by or for the vendor.
Compl. ¶ 8; see Mot. at 4–6; Sentry Policy at 28–29.
The Sentry Policy contains an “Other Insurance” provision that contains language identical
to the “Other Insurance” provision in the Wesco Policy (stated above). Compl. ¶ 9; see Sentry
Policy at Section IV.4.
The Sentry Policy contains a provision titled, “Duties In The Event Of Occurrence,
Offense, Claim Or Suit,” that states, in pertinent part:
No insured will, except at that insured’s own cost, voluntarily make a
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payment, assume any obligation, or incur any expense, other than for
first aid, without our consent.
Mot. at 6; see Sentry Policy at Section IV.2.d.
The Sentry Policy contains a provision titled, “Legal Action Against Us,” that states:
No person or organization has a right under this Coverage Part:
a. To join us as a party or otherwise bring us into a ‘suit’ asking for
damages from an insured; or
b. To sue us on this Coverage Part unless all of its terms have been
fully complied with.
A person or organization may sue us to recover on an agreed
settlement or on a final judgment against an insured; but we will not
be liable for damages that are not payable under the terms of this
Coverage Part or that are in excess of the applicable limit of
insurance. An agreed settlement means a settlement and release of
liability signed by us, the insured and the claimant or the claimant’s
legal representative.
Mot. at 7; see Sentry Policy at Section IV.3.
c. The Federal Insurance Company Policy
Sentry’s named insured Alliance
was also insured under a policy of excess liability insurance issued by
non-party Federal Insurance Company with limits of insurance of $25
million in excess of Sentry’s $2 million in primary insurance. The
Federal policy thus provided Alliance Laundry with $25 million in
coverage applicable to the underlying Hutson Action over and above
the $2 million available under the Sentry policy.
Compl. ¶ 11.
2. Wesco’s Allegations Regarding Defense And Settlement In The Underlying
Action
Wesco alleges the following in the Complaint. Concerning the Hutson Action, under the
“Other Insurance” provisions in the Wesco and Sentry Policies, “Sentry’s coverage for [Taylor]
was and is primary and Wesco’s coverage for [Taylor] was and is excess.” Id. ¶ 10.
As Taylor’s primary insurer, Sentry agreed to defend Taylor in the Hutson Action. Id. ¶
12. Sentry hired separate defense counsel to represent Taylor and Alliance—both counsel were
supervised by the same Sentry claims adjuster. Id. ¶ 13.
Mr. Hutson served a Statutory Offer on Taylor “under Cal. Code of Civil Procedure § 998
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to allow judgment to be taken against [Taylor] in the amount of $1,999,999.99.” Id. ¶ 16.
Taylor’s counsel “advised Sentry and Wesco that the value of the claims against [Taylor] in the
underlying Hutson action exceeded the value of [Mr. Hutson’s] statutory offer.” Id. ¶ 18. As
Taylor’s excess insurer, Wesco “demanded that Sentry accept [Mr. Hutson’s] statutory offer
within Sentry’s limits on or before the offer’s expiration.” Id. ¶ 19; see Wesco’s Request for
Judicial Notice, Ex. C (the “Wesco Demand Letter”) (ECF No. 19-1 at 18). In its Demand Letter,
Wesco invited Sentry to share evidence that its limits were impaired. Compl. ¶ 20. Sentry
rejected Wesco’s demand, did not provide evidence of impairment, and did not offer to pay any
portion of Taylor’s liability under Mr. Hutson’s statutory offer. Id. ¶¶ 21–22. Sentry’s actions
threatened Taylor “with liability in excess of the Sentry policy limits.” Id. ¶ 30.
Wesco then “committed its excess limits of $1 million to [Taylor’s] defense counsel hired
by Sentry for purposes of accepting [Mr. Hutson’s] statutory offer.” Id. ¶ 23. Taylor’s counsel
“accepted the pending statutory offer to allow judgment to be taken against [Taylor] in the amount
of $1,999,999.99.” Id. ¶ 24. Judgment was entered against Taylor in the Hutson Action in the
amount of $1,999,999.99. Id. ¶ 25; see Sentry’s Request for Judicial Notice, Ex. D (the “Hutson
Judgment”) (ECF No. 12-1 at 359).
Wesco “has paid or will shortly pay its $1 million toward satisfaction” of this judgment
against Taylor. Compl. ¶ 26; see Wesco’s Request for Judicial Notice, Ex. B (the “Hutson
Satisfaction of Judgment”) (ECF No. 19-1 at 15). “A non-party insurer committed to pay the
additional sums needed to satisfy the judgment.” Compl. ¶ 24.
At no point did Mr. Hutson’s “demands for settlement against [Alliance] exceed or
threaten to exceed the $25 million limits of Federal’s excess policy, without considering Sentry’s
primary policy.” Id. ¶ 17. Thus, “[h]ad Sentry accepted the statutory offer, Sentry’s named
insured would have remained fully protected by its excess insurance coverage, thereby eliminating
financial exposure to [Taylor] without prejudice to the interests of [Alliance].” Id. ¶ 34.
As Taylor’s excess insurer, “Wesco should not have been required to pay out Wesco’s
limits of insurance on behalf of [Taylor] toward satisfaction of the judgment, in whole or in
part[.]” Id. ¶ 33. Wesco therefore suffered damages in the amount of at least one million dollars
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for the amount that it paid toward satisfying the judgment against Taylor. Id. ¶¶ 31, 34.
B. Procedural Background
The Hutson Action commenced on September 15, 2021, when Mr. Hutson filed a
complaint in the Contra Costa Superior Court. Hutson Complaint at 1. On April 16, 2025, Mr.
Hutson served the Statutory Offer on Taylor. Compl. ¶ 16. On August 12, 2025, Taylor’s counsel
accepted the Statutory Offer, allowing judgment to be taken against Taylor. Id. ¶ 24. On August
21, 2025, judgment was entered against Taylor in the Hutson Action. Id. ¶ 25; see Hutson
Judgment. On September 12, 2025, Mr. Hutson filed a satisfaction of judgment acknowledging
that Taylor had satisfied the judgment in full. See Hutson Satisfaction of Judgment.
On September 5, 2025, Wesco filed its complaint against Sentry, alleging three causes of
action under California law: (1) Breach of Contract (In Subrogation); (2) Breach of Implied
Covenant of Good Faith and Fair Dealing (In Subrogation); and (3) Declaratory Judgment.
Compl. ¶¶ 27–35 (ECF No. 1). Wesco seeks, inter alia, damages, attorneys’ fees, and binding
judicial declarations. Id. at 7–8.
On October 15, 2025, Sentry filed the instant Motion to Dismiss pursuant to Rule 12(b)(6)
and a Request for Judicial Notice. ECF Nos. 12 (“Mot.”), 12-1. On November 11, 2025, Wesco
filed an Opposition and a Request for Judicial Notice. ECF Nos. 19 (“Opp.”), 19-1. On
November 19, 2025, Sentry filed a Reply. ECF No. 20 (“Reply”).
III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal
sufficiency of a claim. A claim may be dismissed only if it appears beyond doubt that the plaintiff
can prove no set of facts in support of his claim which would entitle him to relief.” Cook v.
Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (cleaned up). Rule 8 provides that a complaint must
contain a “short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). Thus, a complaint must plead “enough facts to state a claim to relief that
is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plausibility does
not mean probability, but it requires “more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint must therefore provide a
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defendant with “fair notice” of the claims against it and the grounds for relief. Twombly, 550 U.S.
at 555 (citation omitted).
In considering a motion to dismiss, the court accepts factual allegations in the complaint as
true and construes the pleadings in the light most favorable to the nonmoving party. Manzarek v.
St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008); accord Erickson v. Pardus,
551 U.S. 89, 93–94 (2007). However, “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Iqbal, 556 U.S. at 678.
If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no
request to amend the pleading was made, unless it determines that the pleading could not possibly
be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en
banc) (cleaned up). A court “may exercise its discretion to deny leave to amend due to ‘undue
delay, bad faith or dilatory motive on part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing party . . ., [and] futility of
amendment.’” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892–93 (9th Cir. 2010)
(alterations in original) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Courts have broader
discretion in denying motions for leave to amend after leave to amend has already been granted.
See Rich v. Shrader, 823 F.3d 1205, 1209 (9th Cir. 2016) (“[W]hen the district court has already
afforded a plaintiff an opportunity to amend the complaint, it has wide discretion in granting or
refusing leave to amend after the first amendment, and only upon gross abuse will its rulings be
disturbed.”) (cleaned up); Chodos v. W. Publ’g Co., 292 F.3d 992, 1003 (9th Cir. 2002) (“[W]hen
a district court has already granted a plaintiff leave to amend, its discretion in deciding subsequent
motions to amend is particularly broad.”) (cleaned up).
IV. DISCUSSION
Sentry moves to dismiss all of Wesco’s claims for failing to state a cognizable claim. Mot.
at 1–2. In sum, the Court concludes that Wesco alleges cognizable claims for breach of contract
and breach of the implied covenant of good faith and fair dealing in subrogation and for
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declaratory judgment. Therefore, dismissal of Claims 1, 2, and 3 is not warranted.
A. Motion For Leave To File Sur-Reply
On November 23, 2025—after briefing on Sentry’s Motion was complete—Wesco sought
leave to file a sur-reply to respond “to two new arguments raised in Sentry’s reply brief.” ECF
No. 24. Wesco asserts that (1) Sentry’s objection to “Wesco’s request for judicial notice equates
to an objection to the evidence offered in the judicial-notice request”; and (2) Sentry offers its
arguments on Hartford, a case cited by Wesco in its Opposition to Sentry’s Motion, for the first
time in Sentry’s Reply. Id. On November 25, 2025, Sentry filed an Opposition to Wesco’s
request to file a sur-reply. ECF No. 25. Sentry argues that the Court should deny Wesco’s request
because “Sentry’s Reply Brief does not make new arguments or proffer new evidence.” Id.
Under the Local Rules, a party must obtain the court’s permission to file supplementary
material after a reply is filed, unless the additional material comprises an objection to new
evidence proffered in the reply or a newly published judicial opinion. Civ. L.R. 7.3(d).
Here, the Court finds that granting Wesco leave to file a sur-reply is not warranted. To be
sure, “[i]f a party raises a new argument or presents new evidence in a reply brief, a court may
consider these matters only if the adverse party is given an opportunity to respond.” Banga v.
First USA, NA, 29 F. Supp. 3d 1270, 1276 (N.D. Cal. 2014) (citing El Pollo Loco, Inc. v. Hashim,
316 F.3d 1032, 1040–41 (9th Cir. 2003)). However, Wesco fails to identify any new evidence or
legal argument proffered by Sentry for the first time in Sentry’s Reply. First, as Wesco
acknowledges, Sentry objected to Wesco’s request for judicial notice. ECF No. 24. Wesco cites
to no authority—and the Court is aware of none—holding that an opposition to judicial notice is
tantamount to presenting new evidence or legal argument. Second, because Wesco discussed the
Hartford case in its Opposition, the Court agrees with Sentry that Sentry’s discussion of Hartford
in its Reply does not constitute a new legal argument. See ECF No. 25; Burnham v. City of
Rohnert Park, No. C-92-1439-SC, 1992 WL 672965, at *1 n.2 (N.D. Cal. May 18, 1992)
(“[R]eply briefs are limited in scope to matters either raised by the opposition or unforeseen at the
time of the original motion.”). Therefore, Wesco has not demonstrated a valid reason exists for
additional briefing. Cf. Banga, 29 F. Supp. 3d at 1276.
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Accordingly, the Court DENIES Wesco’s request to file a sur-reply.
B. Requests For Judicial Notice
1. Sentry’s Request For Judicial Notice
Sentry requests the Court take judicial notice of four documents:
1. Sentry Insurance Company policy issued to Alliance Laundry
Holdings LLC, policy No. 90-05297-03 effective 5/5/2019 –
5/20/2020. A true and correct copy of the Sentry policy with the
premiums redacted is attached as Exhibit A.
2. Wesco Insurance Company policy issued to Taylor Houseman Inc.,
policy no. WPP1827846 00, effective 8/25/2019 – 8/25/2020. A true
and correct copy of the Wesco policy provided by Wesco to Sentry is
attached as Exhibit B.
3. The Third Amended Complaint in the action Jaurice Hutson v.
Taylor Houseman, Inc et al, Contra Costa Superior Court Case No.
CIV MSC21-0190 ‘Underlying Action.’) A true and correct copy of
the Third Amended Complaint is attached as Exhibit C.
4. The Judgment Pursuant to Code of Civil Procedure § 998 which
attaches as Exhibit A, Plaintiff’s Offer to Compromise Judgment filed
in the Underlying Action. A true and correct copy is attached as
Exhibit D.
ECF No. 12-1. In its Motion, Sentry also argues that the Court should consider these documents
under the incorporation by reference doctrine. Mot. at 3:5–24. The Court therefore construes
Sentry’s request for judicial notice also as a request for incorporation by reference. Wesco
responds that “under the incorporation rule . . . Sentry’s requests are procedurally appropriate and
[Wesco] does not object.” ECF No. 19-1.
Normally, when adjudicating a motion to dismiss brought pursuant to Rule 12(b)(6), the
Court’s consideration of extra-pleading materials is limited and matters outside of the pleading
cannot be considered without converting the motion into a motion for summary judgment. See
Fed. R. Civ. P. 12(b)(6), 12(d). However, there are two exceptions—the incorporation-by-
reference doctrine and judicial notice. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998
(9th Cir. 2018).
Under the Federal Rules of Evidence, the Court may take judicial notice of matters that are
(1) generally known within the trial court’s territorial jurisdiction; or (2) capable of accurate and
ready determination by resort to sources whose accuracy cannot reasonably be questioned. Fed.
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R. Evid. 201(b).
Under the doctrine of incorporation-by-reference, the Court may consider a document not
attached to the complaint provided the complaint “necessarily relies” on the document or contents
thereof, the document’s authenticity is uncontested, and the document’s relevance is uncontested.
Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010); see United States v. Ritchie,
342 F.3d 903, 908 (9th Cir. 2003) (“Even if a document is not attached to a complaint, it may be
incorporated by reference into a complaint if the plaintiff refers extensively to the document or the
document forms the basis of the plaintiff’s claim.”). “The defendant may offer such a document,
and the district court may treat such a document as part of the complaint, and thus may assume
that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” Ritchie, 342
F.3d at 908.
Here, the Court agrees that it is appropriate to incorporate by reference the four documents
requested by Sentry. Wesco does not contest the authenticity or relevance of the documents, and
the Court agrees that the Complaint and Wesco’s claims necessarily rely upon the Sentry Policy,
the Wesco Policy, the Hutson Complaint, and the Hutson Judgment. See Compl. ¶¶ 5–7, 16.
Therefore, the Court considers the documents incorporated for purposes of this Motion, and the
request for incorporation is GRANTED. The Court expresses no opinion on the request for
judicial notice, as it is unnecessary to reach that issue.
2. Wesco’s Request For Judicial Notice
Wesco requests the Court take judicial notice of three documents, marked as follows:
1.Exh. A: Taylor Houseman’s separate statement of undisputed facts
in support of motion for summary judgment
2. Exhibit B: Satisfaction of Judgment
3. Exhibit C: Demand Letter
ECF No. 19-1. Wesco argues that in the “spirit of a fuller record,” the Court should take judicial
notice of “two additional public documents taken from the Hutson action as well as one of the
documents, the demand letter alleged referenced in Wesco’s complaint[.]” Id. (citing Compl.
¶19). The Court construes Wesco’s request for judicial notice also as a request for incorporation
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by reference. Sentry contends that the Court may only take judicial notice of the existence of
Taylor’s Statement of Facts in the Hutson Action but “cannot take as true the arguments or
allegations in that pleading.” Reply at 10:13–25. Sentry further contends that the Wesco Demand
Letter “is not the contract upon which the breach of contract is based and therefore is irrelevant
and should not be [the] subject of judicial notice.” Id.
Here, the Court finds that it is appropriate to incorporate by reference the Hutson
Satisfaction of Judgment and the Wesco Demand Letter as Wesco’s Complaint and claims
necessarily rely on these two documents. See Compl. ¶¶ 19–20, 25–26. Sentry contests the
relevance of the Wesco Demand Letter. Reply at 10:13–25. But Wesco relies on the letter in its
Complaint to allege that Sentry was on notice of Wesco’s position that it is Taylor’s excess insurer
and that it asked Sentry if Sentry’s limits were impaired. Compl. ¶¶ 19–20; see also Opp. at 9:26–
10:7, 19:18–25. Therefore, the Court considers the Hutson Satisfaction of Judgment and the
Wesco Demand Letter incorporated for purposes of this Motion and assumes their contents are
true for purposes of this Motion. Ritchie, 342 F.3d at 908.
However, because Wesco’s Complaint does not reference Taylor’s Statement of Facts in
the Hutson Action, the Court cannot incorporate the document by reference. See generally Compl.
While a court may take judicial notice of the existence of unrelated court documents, it cannot
“take judicial notice of such documents for the truth of the matter asserted therein.” In re Bare
Escentuals, Inc. Sec. Litig., 745 F. Supp. 2d 1052, 1067 (N.D. Cal. 2010). Thus, the Court takes
judicial notice only of the existence of Taylor’s Statement of Facts in the Hutson Action.
Accordingly, the Court GRANTS Wesco’s request for judicial notice of the existence of
Taylor’s Statement of Facts in the Hutson Action and GRANTS Wesco’s request to incorporate
by reference the Hutson Satisfaction of Judgment and the Wesco Demand Letter.
C. Subrogation
Wesco alleges that it is subrogated to the rights of Taylor as against Sentry. Compl. ¶¶ 28–
30.
“In general terms, subrogation is the substitution of one party in place of another with
reference to a lawful claim, demand or right. . . . Subrogation places the party paying the loss or
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claim (the ‘subrogee’) in the shoes of the person who suffered the loss (‘the subrogor’).” In re
Hamada, 291 F.3d 645, 649 (9th Cir. 2002). In California, “[s]ubrogation is of two sorts: ‘legal’
and ‘conventional.’ Legal subrogation had its source in equity and arises by operation of law.
Conventional subrogation arises by act of the parties and rests on contract.” Fifield Manor v.
Finston, 54 Cal. 2d 632, 638 (1960) (citations omitted). As such, “legal” subrogation is also
known as “equitable” subrogation. State Farm Gen. Ins. Co. v. Wells Fargo Bank, N.A., 143 Cal.
App. 4th 1098, 1106 (2006).
Under California law, “insurance companies may be subrogated to the rights of their
insureds.” Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal. 3d 622, 634 (1975). “Equitable
subrogation allows an insurer that paid coverage or defense costs to be placed in the insured’s
position to pursue a full recovery from another insurer who was primarily responsible for the
loss.” Maryland Cas. Co. v. Nationwide Mut. Ins. Co., 81 Cal. App. 4th 1082, 1088 (2000).
The essential elements of an insurer’s cause of action for equitable subrogation are:
(a) the insured suffered a loss for which the defendant is liable, either
as the wrongdoer whose act or omission caused the loss or because
the defendant is legally responsible to the insured for the loss caused
by the wrongdoer;
(b) the claimed loss was one for which the insurer was not primarily
liable;
(c) the insurer has compensated the insured in whole or in part for the
same loss for which the defendant is primarily liable;
(d) the insurer has paid the claim of its insured to protect its own
interest and not as a volunteer;
(e) the insured has an existing, assignable cause of action against the
defendant which the insured could have asserted for its own benefit
had it not been compensated for its loss by the insurer;
(f) the insurer has suffered damages caused by the act or omission
upon which the liability of the defendant depends;
(g) justice requires that the loss be entirely shifted from the insurer to
the defendant, whose equitable position is inferior to that of the
insurer; and
(h) the insurer’s damages are in a liquidated sum, generally the
amount paid to the insured.
Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1292 (1998).
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Sentry argues that Wesco cannot state a cognizable claim for subrogation because (1) it is
Wesco, not Sentry, who is “primarily liable for the independent negligence claim against
[Taylor]”; (2) Taylor “lacks an existing and assignable cause of action against Sentry”; and (3)
“the equities favor Sentry.” Mot. at 8–16, 20–21. The Court addresses each of these arguments in
turn below.
1. Primary Liability
Sentry argues that “[t]he principal defect in the complaint” is that Wesco cannot “allege
that Wesco paid for losses for which it was not primarily liable, and that it had compensated the
insured for losses for which Sentry was primarily liable.” Mot. at 9:19–12:6 (emphasis in
original). Wesco contends that its policy “is expressly ‘excess over’ other insurance for Taylor”
for which Taylor was “added as an additional insured.” Opp. at 9:8–12:25.
Equitable subrogation permits an excess insurer to obtain recovery against a primary
insurer. Maryland, 81 Cal. App. 4th at 1088–89. “Primary insurance refers to the first layer of
coverage, whereby liability attaches immediately upon the happening of the occurrence that gives
rise to liability. Excess insurance, by contrast, refers to indemnity coverage that attaches upon the
exhaustion of underlying insurance coverage for a claim.” Montrose Chem. Corp. of California v.
Superior Ct., 9 Cal. 5th 215, 222 (2020) (emphasis in original) (cleaned up).
Here, the Court finds that Wesco pleads sufficient facts to plausibly allege that Wesco is
not primarily liable for Taylor’s loss. Sentry asserts that Wesco cannot allege that Wesco is
Taylor’s excess insurer, and that Sentry is Taylor’s primary insurer. Mot. at 9:19–10:3. But
Wesco has done just that. See Compl. ¶ 10. Both parties point to their respective insurance
policies and reach opposite conclusions regarding Wesco’s obligation to Taylor in the Hutson
Action. Compare Mot. at 9:21–12:6 with Opp. at 9:18–12:7. In short, the Court cannot determine
at the pleadings stage who has the better reading of the insurance policies.
“[I]nterpretation of an insurance policy is a question of law.” Waller v. Truck Ins. Exch.,
Inc., 11 Cal. 4th 1, 18 (1995). “A policy provision will be considered ambiguous when it is
capable of two or more constructions, both of which are reasonable.” Id. But within a policy, “[i]f
contractual language is clear and explicit, it governs.” Bank of the W. v. Superior Ct., 2 Cal. 4th
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1254, 1264 (1992). Where the language of an insurance policy is clear and explicit, the policy’s
effect can be decided at the pleadings stage. Albert D. Seeno Constr. Co. v. AIG Specialty Ins.
Co., No. 21-cv-02152-JST, 2021 WL 11592633, at *4 (N.D. Cal. Sept. 20, 2021).
The Wesco Policy states that it is “excess over . . . [a]ny other primary insurance available
to you covering liability for damages arising out of the premises or operations, or the products and
completed operations, for which you have been added as an additional insured.” Compl. ¶ 9; Opp.
at 7:1–6 (citing Wesco Policy at Section IV.4). The Sentry Policy names Taylor as an additional
insured and covers Taylor for loss “arising out of” Alliance’s products. Compl. ¶¶ 7–8. By the
plain terms of the Wesco Policy, Wesco thus plausibly alleges that Sentry is primarily liable for
any of Taylor’s loss “arising out of” Alliance’s defective washing machine. Opp. at 7:1–16,
11:26–12:7 (citing Compl. ¶ 9). Sentry counters that it has no indemnity obligation because
“Wesco remained primarily liable for the negligence claims against” Taylor. Mot. at 9:21–10:1,
12:1–6. Sentry asserts that its Vendor Endorsement excluded liability for Taylor’s independent
negligence. Id.; see Sentry Policy at 28–29. But even if true, the negligence claim—which
alleged more than Taylor’s negligent maintenance—was only one of four claims in the Hutson
Action. Hutson Complaint at 16–21; see Opp. at 5:3–8. In other words, because there are at least
two reasonable interpretations of the policies—that Sentry is primarily liable because the action
“arises out of” Alliance’s product or that Wesco is primarily liable because Sentry’s policy
excludes liability for Taylor’s negligence—the policies are ambiguous. Waller, 11 Cal. 4th at 18.
Overall, Sentry asks the Court to embark on a complex analysis of ambiguous policy
language at the dismissal stage; this is too much to ask at this stage. Indeed, the cases Sentry cites
to for its proposition that Wesco is primarily liable for Taylor’s loss are all in the summary
judgment posture, reinforcing that the question of whether an insurer is primarily liable for a loss
is one best answered on summary judgment. See Mot. at 10:12–11:28 (citing e.g., Maryland, 81
Cal. App. 4th at 1082); see also generally Westport Ins. Corp. v. California Cas. Mgmt. Co., 249
F. Supp. 3d 1164 (N.D. Cal. 2017) (interpreting insurance policies to determine order of coverage
on summary judgment). Therefore, on a motion to dismiss, the Court cannot say as a matter of
law that Wesco is primarily liable for Taylor’s loss.
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2. Existing And Assignable Cause Of Action
Sentry argues that Wesco has no claim against Sentry because Taylor did not suffer any
damages caused by Sentry’s alleged breach. Mot. at 12:7–16:2. Wesco contends that an insurer’s
claim in subrogation is not precluded when an insurer, rather than an insured, pays for a judgment
against the insured. Opp. at 13:1–15:21.
A “subrogated insurer is said to ‘stand in the shoes’ of its insured, because it has no greater
rights than the insured and is subject to the same defenses assertable against the insured.”
Fireman’s Fund, 65 Cal. App. 4th at 1292 (cleaned up).
Here, the Court finds that Wesco pleads sufficient facts to plausibly allege that Taylor has
an existing, assignable cause of action against Sentry. Sentry takes issue with the purported fact
that Taylor has no live claim against Sentry because Taylor cannot show that it suffered damages.
Mot. at 12:11–25. But that is not the correct standard. Equitable subrogation requires that “the
insured has an existing, assignable cause of action against the defendant which the insured could
have asserted for its own benefit had it not been compensated for its loss by the insurer.”
Fireman’s Fund, 65 Cal. App. 4th at 1292 (emphasis added); see Opp. at 13:15–26. Wesco
plausibly alleges that by refusing “to accept the within-limits statutory offer against Taylor,”
Sentry “breached its contractual duty to [Taylor], thereby threatening [Taylor] with liability in
excess of the Sentry policy limits.”3 Compl. ¶ 30. In other words, had Wesco not stepped in,
Taylor could have asserted a contract action against Sentry based on Sentry’s failure to fulfill its
obligations under the Sentry Policy to pay the money judgment against Taylor. Opp. at 15:22–26.
Sentry’s cited cases are inapposite—they involve insureds bringing suit for money paid by
insurers, not insurers bringing suit for money paid on behalf of an insured that another should have
paid. See Mot. at 12:26–14:24 (citing e.g., Emerald Bay Cmty. Ass’n v. Golden Eagle Ins. Corp.,
130 Cal. App. 4th 1078, 1089 (2005)); Opp. at 13:6–14:2 (discussing Sentry’s cited cases).
3 In its Reply, Sentry argues that Taylor was not threatened with liability in excess of Sentry’s
policy limits because Taylor “was also an insured under the Federal excess policy” and “was
protected by the $25 million excess [Federal] policy.” Reply at 7:18–27. But these purported
facts are not in the Complaint and must therefore be resolved at the summary judgment stage, not
on dismissal. See generally Compl.
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Unlike the cases cited by Sentry, Wesco alleges that it (an insurer) paid money on behalf of Taylor
(an insured) that Sentry should have paid. Compl. ¶¶ 30–34. Therefore, Wesco plausibly alleges
that Taylor could have asserted a cause of action against Sentry had Wesco not stepped in.
3. Balance Of Equities
Sentry argues that Wesco fails to allege facts satisfying the seventh element for equitable
subrogation because (1) Taylor “has a greater connection to the loss as its alleged negligence is
alleged to have caused the injury giving rise to the” Hutson Action; (2) “Sentry fulfilled its
contractual obligations by fully defending” Taylor; and (3) Wesco “breached its obligations by
failing to contribute to the defense despite its exposure for negligence liability.” Mot. at 20:26–
21:24. Wesco contends that Sentry breached its policy and settlement duty to Taylor. Opp. at
23:2–24:9.
The most restrictive principle of equitable subrogation “is the doctrine of superior equities,
which prevents an insurer from recovering against a party whose equities are equal or superior to
those of the insurer.” State Farm, 143 Cal. App. 4th at 1107. While a court is required to
determine who ultimately ought to bear the loss, “there is no facile formula for determining
superiority of equities.” Id. at 1112 (cleaned up).
Here, the Court finds that because Wesco pleads sufficient facts to show that it is Taylor’s
excess insurer, Wesco likewise pleads sufficient facts to show that the equites weigh in its favor.
See Great Am. All. Ins. Co. v. Cont’l Cas. Co., No. 23-cv-1796-BAS-JLB, 2025 WL 2323512, at
*24 (S.D. Cal. Aug. 12, 2025) (citing Reliance Nat. Indem. Co. v. Gen. Star Indem. Co., 72 Cal.
App. 4th 1063, 1080–83 (1999)) (“[C]ourts tend to find this element favors the excess insurer in a
subrogation dispute between a primary and an excess insurer.”). To be sure, while “a major part
of the equities assessment” is “the parties’ involvement as excess and primary insurers,” a court
“must still, however, weigh the equities.” Id. But at the dismissal stage, the Court need not weigh
the equities—that is a matter for summary judgment. Cf. id. at *23–25 (weighing equities for
equitable subrogation claim on summary judgment).
Accordingly, the Court concludes that Wesco pleads sufficient facts to show that it is
subrogated to the rights of Taylor as against Sentry.
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D. Breach Of Contract Claim (Claim 1)
Wesco alleges that “Sentry breached its contractual duty to [Taylor], thereby threatening
[Taylor] with liability in excess of the Sentry policy limits” when Sentry refused to authorize
Taylor’s counsel to accept the within-limits statutory offer against Taylor in the Hutson Action.
Compl. ¶ 30. Sentry argues that Wesco’s breach of contract claim fails because Taylor must
suffer actual harm to state such a claim. Mot. at 15:20–16:2. Wesco contends that its claim in
subrogation is not precluded by the fact that Taylor cannot separately sue Sentry on Taylor’s own
account. Opp. at 13:2–26.
To prevail on a breach of contract claim under California law, a plaintiff must prove “(1)
the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v.
Goldman, 51 Cal. 4th 811, 821 (2011). “Implicit in the element of damage is that the defendant’s
breach caused the plaintiff’s damage.” Troyk v. Farmers Grp., Inc., 171 Cal. App. 4th 1305, 1352
(2009) (emphasis in original). Whether a party breached a contract is a question of fact. Locke v.
Warner Bros., 57 Cal. App. 4th 354, 365 (1997).
Here, the Court concludes that Wesco alleges a cognizable breach of contract claim, in
subrogation, against Sentry. As with its arguments on subrogation, Sentry conflates an insured’s
claim with an insurer’s claim. While there is no dispute that if Taylor brought a breach of contract
claim against Sentry, Taylor would need to allege actual harm, the same requirement does not
apply to Wesco’s claim in subrogation against Sentry. Mot. at 12:11–14:24; Opp. at 14 n.3; see
Emerald Bay, 130 Cal. App. 4th at 1082, 1089 (holding in insured’s action against non-
participating insurer that insured “cannot show it suffered any contract damages”); but see United
Servs. Auto. Ass’n v. Alaska Ins. Co., 94 Cal. App. 4th 638, 647 (2001) (“Ordinarily, an excess
insurer’s damages in an equitable subrogation action against a primary insurer are the sums the
excess insurer paid to settle a third party claim against the insured due to the primary insurer’s
wrongful refusal to settle.”); cf. Maryland, 81 Cal. App. 4th at 1089 (“[A]n excess insurer that
pays defense costs will frequently obtain a full recovery against the primary insurer on an
equitable subrogation theory.”). Wesco alleges that Sentry breached its contractual duties to
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Taylor and that Sentry’s breach caused Wesco to suffer harm in the form of paying Taylor’s loss
that Sentry was required to pay. Compl. ¶¶ 27–31. At the pleadings stage, this sufficiently
establishes a legal claim by one insurer against another insurer.
Accordingly, the Court DENIES Sentry’s motion to dismiss Wesco’s Breach of Contract
Claim (Claim 1).
E. Breach Of Implied Covenant Of Good Faith And Fair Dealing Claim (Claim 2)
Wesco alleges that “Sentry breached its implied covenant of good faith and fair dealing
when it wrongfully refused to accept a reasonable statutory settlement offer within the policy
limits, or to commit its limits if impaired, thereby exposing [Taylor] to significant liability.”
Compl. ¶ 34. Sentry argues this claim fails because (1) no excess judgment was entered against
Taylor; and (2) “there was no ‘reasonable’ settlement offer providing the basis for a bad faith
claim against Sentry.” Mot. at 14:25–18:5. Wesco contends that (1) a judgment within primary
limits is sufficient to state a claim; and (2) the Hutson Statutory Offer, rejected by Sentry, was
reasonable.4 Opp. at 14:3–20:8.
Under California law, “[t]he covenant of good faith and fair dealing, implied by law in
every contract, exists merely to prevent one contracting party from unfairly frustrating the other
party's right to receive the benefits of the agreement actually made.” Guz v. Bechtel Nat. Inc., 24
Cal. 4th 317, 349 (2000) (emphasis in original). “Just what conduct will meet this criteria must be
determined on a case by case basis and will depend on the contractual purposes and reasonably
justified expectations of the parties.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App.
3d 1371, 1395 (1990). Whether the implied covenant has been breached is a question of fact.
Hicks v. E.T. Legg & Assocs., 89 Cal. App. 4th 496, 509 (2001).
The implied covenant “applies equally to insurance policies, which are a category of
contracts.” Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 400 (2000). “[A]
liability insurance policy’s express promise to defend and indemnify the insured against injury
4 In its Reply, Sentry asserts that “Wesco does not address or refute that it cannot state a bad faith
claim.” Reply at 10:4–12. This is simply not true—Wesco devotes pages of its Opposition to the
bad faith claim. See Opp. at 15–20.
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claims implies a duty to settle third party claims in an appropriate case.” Id. at 401. “More
specifically, the insurer must settle within policy limits when there is substantial likelihood of
recovery in excess of those limits.” Id. (cleaned up). Further, “an insurer’s breach of the implied
covenant will provide the basis for an action in tort.” Id. at 400 (cleaned up).
Here, the Court concludes that Wesco alleges a cognizable implied covenant claim, in
subrogation, against Sentry. First, the Court disagrees with Sentry that an excess judgment against
an insured is a prerequisite for an insurer’s implied covenant claim. Sentry cites to RLI Ins. Co. v.
CNA Cas. of California for its proposition that an excess judgment is required. Mot. at 14:25–
15:19 (citing 141 Cal. App. 4th 75, 82 (2006)). But the Ninth Circuit expressly rejected RLI,
holding that the California Supreme Court would not likely adopt such a categorical rule but
would instead adopt a “rule that an excess litigated judgment is not a prerequisite to an equitable
subrogation action by an excess insurer against a primary insurer when the excess carrier has
contributed to the underlying settlement.” RSUI Indem. Co. v. Discover P & C Ins. Co., 649 F.
App’x 534, 535–37 (9th Cir. 2016). The Court agrees with other district courts that although not
binding (because it is unpublished), the Ninth Circuit’s reasoning is persuasive. See UFG
Specialty Ins. v. Am. Fire & Cas. Co., No. 2:23-cv-02263-SB-MAR, 2024 WL 1680067, at *2
(C.D. Cal. Mar. 18, 2024) (holding absence of excess judgment does not preclude subrogation).
Namely, the RSUI court explained that where, as in this case, an excess insurer contributes to
settle a case on behalf of an insured, an excess judgment is not required because there is little risk
of collusive settlement. RSUI, 649 F. App’x at 536; see Opp. at 24:18–25:2. Moreover, since
RSUI, California courts have held that “[a]n excess judgment is not a required element of a cause
of action for equitable subrogation or breach of the duty of good faith and fair dealing.” Ace Am.
Ins. Co. v. Fireman’s Fund Ins. Co., 2 Cal. App. 5th 159, 183 (2016). The Ace court explained
that when an excess insurer alleges that
it was required to contribute to the settlement of the underlying case
due to the primary insurer’s failure to reasonably settle the case within
policy limits, the lack of an excess judgment against the insured in the
underlying case does not bar an action for equitable subrogation and
breach of the duty of good faith and fair dealing.
Id. at 164. Therefore, the Court cannot say that California law requires an excess judgment for an
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insurer’s cognizable implied covenant claim.
Second, the Court cannot say that as a matter of law, Wesco fails to plead facts showing
that the statutory offer was reasonable. “[O]rdinarily whether the insurer has acted unreasonably,
and hence in bad faith, in rejecting a settlement offer is a question of fact to be determined by the
jury. . . . The question becomes one of law only when, because there are no conflicting inferences,
reasonable minds could not differ.” Walbrook Ins. Co. v. Liberty Mut. Ins. Co., 5 Cal. App. 4th
1445, 1454 (1992) (cleaned up). The California Supreme Court has explained that “the only
permissible consideration in evaluating the reasonableness of the settlement offer becomes
whether, in light of the victim’s injuries and the probable liability of the insured, the ultimate
judgment is likely to exceed the amount of the settlement offer.” Archdale v. Am. Int’l Specialty
Lines Ins. Co., 154 Cal. App. 4th 449, 464 (2007) (citing Johansen v. California State Auto. Ass’n
Inter-Ins. Bureau, 15 Cal. 3d 9, 16 (1975)) (emphasis in original). Wesco alleges that the statutory
offer for Taylor was within the Sentry Policy limits, that Taylor’s counsel opined that the value of
the claims against Taylor exceeded the amount of the offer, that Alliance was covered by another
insurer for twenty-five million dollars which would have covered any claims against Alliance had
Sentry accepted the offer for Taylor, and that Sentry refused to contribute to the judgment against
Taylor. Compl. ¶¶ 11, 16–18, 22. Thus, Wesco alleges facts showing that the judgment against
Taylor was likely to exceed the amount of the Hutson Statutory Offer.
Further, Sentry’s assertion that the offer was per se unreasonable because “Sentry was
precluded to accepting the offer as a matter of law” as “the offer did not apply to Sentry’s named
insured [Alliance]” is disputed. Mot. at 16:3–9. Sentry’s cases on this issue are not on point—no
case involved insureds that were protected against liability with additional insurance policies. Id.;
see Opp. at 2:7–14 (“Each of Sentry’s authorities rely on settings where a coinsured would be left
‘bereft of coverage’ if an insurer in Sentry’s position paid for one insured and not another.”).
Therefore, the Court agrees with Wesco that Sentry fails to show at the pleadings stage that the
Hutson Statutory Offer was not reasonable as a matter of law.
Accordingly, the Court DENIES Sentry’s motion to dismiss Wesco’s Breach of Implied
Covenant of Good Faith and Fair Dealing claim (Claim 2).
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F. Declaratory Judgment Claim (Claim 3)
Wesco requests a binding judicial declaration that
Sentry was and remains obligated to pay out Sentry’s limits of
insurance on behalf of Taylor Houseman toward satisfaction of the
judgment entered against [Taylor], that Wesco should not have been
required to pay out Wesco’s limits of insurance on behalf of [Taylor]
toward satisfaction of the judgment, in whole or in part, and therefore
that Sentry should reimburse Wesco for the sums Wesco should not
have been required to pay, whether by way of equitable subrogation,
equitable indemnity, equitable contribution, or otherwise.
Compl. ¶¶ 32–35. Sentry does not make any arguments specifically directed to this claim other
than its general request that the Court dismiss the Complaint “in its entirety.” Mot. at 22:15–17.
Under the Declaratory Judgment Act, a federal district court may declare the rights and
other legal relations of any interested party seeking such declaration. Argonaut Ins. Co. v. St.
Francis Med. Ctr., 17 F.4th 1276, 1280 (9th Cir. 2021).
Here, because Wesco’s equitable subrogation claims survive dismissal, the Court
concludes that Wesco alleges a cognizable declaratory judgment claim against Sentry. See AIU
Ins. Co. v. Acceptance Ins. Co., No. C-07-5491-PJH, 2008 WL 4937830, at *3 (N.D. Cal. Nov. 17,
2008) (“Until the equitable indemnity/contribution and subrogation claims have been resolved, the
court cannot find that the claim for declaratory relief would be duplicative of other claims or that it
serves no useful purpose.”).
Accordingly, the Court DENIES Sentry’s motion to dismiss Wesco’s Declaratory
Judgment claim (Claim 3).
G. Sentry’s Defenses
Sentry argues that Wesco’s claims fail because (1) “Sentry is not bound by the settlement
entered without its participation”; and (2) “the settlement violated the policy’s conditions
regarding voluntary payments and Legal Action Against Us.” Mot. at 18:6–20:25; see Sentry
Policy at Sections IV.2.d, IV.3. Wesco contends that Sentry’s defenses fail because (1) “Sentry
impliedly consented to entry of the judgment against Taylor”; (2) there is no evidence of
collusion; and (3) “Sentry’s own breaches of its duty to settle . . . prevent Sentry from relying on
these policy conditions.” Opp. at 2:19–26.
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Here, the Court finds that Sentry’s defenses cannot be resolved at the pleadings stage.
“Ordinarily affirmative defenses may not be raised by motion to dismiss, but this is not true when
. . . the defense raises no disputed issues of fact.” Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th
Cir. 1984) (internal citation omitted); see also Rabin v. Google LLC, 725 F. Supp. 3d 1028, 1030
(N.D. Cal. 2024) (“[T]he voluntary payments rule is an affirmative defense.”). Wesco alleges that
Sentry hired and controlled Taylor’s defense counsel, Taylor’s counsel recommended that Sentry
accept Mr. Hutson’s statutory offer, Wesco committed its excess limits to Taylor’s counsel, and
Taylor’s counsel accepted Mr. Hutson’s offer. Compl. ¶¶ 12, 18, 23–24. As such, contrary to
Sentry’s position, there is a dispute whether Taylor “voluntarily” agreed to the Hutson Statutory
Offer without Sentry’s consent. Compare Mot. at 18:16–17 (“There is also no dispute that Wesco
paid the settlement without Sentry’s consent[.]”) with Opp. at 20:18–21:20 (“Under these facts,
Sentry impliedly consented to entry of judgment.”). Further, California law enforces such no-
voluntary payments provisions only in the absence of insurer breach. Jamestown Builders, Inc. v.
Gen. Star Indem. Co., 77 Cal. App. 4th 341, 346 (1999). Because Wesco plausibly alleges that
Sentry breached its obligations to Taylor, it is not clear at this juncture that Sentry’s no-voluntary
payments clause is enforceable. See Compl. ¶¶ 30, 34.
For the same reasons, it is unclear at this stage whether Sentry’s no action clause is
enforceable. See Opp. at 21:21–22:10. “The ‘no action’ clause gives the insurer the right to
control the defense of the claim—to decide whether to settle or to adjudicate the claim on its
merits.” Safeco Ins. Co. v. Superior Ct., 71 Cal. App. 4th 782, 787 (1999). Thus, under such a
clause, an insurer is not “bound by the terms of a stipulated judgment or a settlement agreement to
which it has not consented.” Cont’l Cas. Co. v. St. Paul Surplus Lines Ins. Co., 803 F. Supp. 2d
1113, 1123 (E.D. Cal. 2011). As discussed, Wesco plausibly alleges that Sentry at least impliedly
consented to the Hutson Statutory Offer. Opp. at 20:18–21:20.
Accordingly, Sentry’s asserted defenses do not bar Wesco’s claims at this stage of
litigation.
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V. CONCLUSION
For the reasons stated above, the Court DENIES Sentry’s Motion to Dismiss.
IT IS SO ORDERED.
Dated: December 3, 2025
THOMAS S. HIXSON
United States Magistrate Judge
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